2021 was Solana’s year, but can he carry that momentum into 2022?
the main points
- Solana is likely to attract more projects, build more closed-end total value, and become more decentralized.
- After this massive period of growth, technical issues may still be challenging.
2021 was a special year for Solana (SOL). It has grown over 11,000% and has gone from being a relatively unknown altcoin to one of the best cryptocurrencies by market cap. Solana is one of the fastest cryptocurrencies in the block, and its low transaction fees have made it an attractive alternative to Ethereum (ETH). It is now listed on most major cryptocurrency exchanges.
Ethereum remains the largest smart contract cryptocurrency and hosts a large number of applications. But the exorbitant fees and heavy traffic on the network are pushing developers and investors to look for alternatives. Solana is one of the biggest beneficiaries of this transformation.
The question is: Can Solana sustain this growth in 2022? Crypto is full of stories of coins that flew high in the sky for a short while, only to fall off the charts in the following months. This is partly because it is a rapidly changing industry, and partly because it is riddled with speculation that drives prices to unrealistic heights.
Here are five Solana’s predictions for 2022:
1. Solana will continue to attract new projects
When I wrote about Solana at the end of August, she had over 400 projects on her website. Now, just four months later, its website says there are over 1,000 projects. This number is sure to increase next year, as more developers flock to this easy-to-use network.
For investors, it is also interesting to take a look at the individual projects being developed in Solana. From decentralized finance applications to non-fungible tokens (NFTs) and the Web3, there are some new cryptocurrencies taking shape. As I write, one of the most popular is Star Atlas (ATLAS), a metaverse multiplayer token.
2. Solana’s total reserved value will grow
Solana’s total value — the assets tied up in decentralized finance applications on its network — has grown from about $1 billion in July to more than $11 billion now, according to DeFi Llama. Popular DeFi implementations include Raydium (RAY) and Serum (SRM), decentralized exchanges that are increasingly attracting investors who do not want to pay high Ethereum gas fees.
3. Solana will become more decentralized
One of the biggest criticisms of Solana is that he is too centralised. A key aspect of Bitcoin (BTC) and the spirit behind the cryptocurrency in general is that it is not dependent on a central body such as a government or a bank.
There are concerns that the Solana Corporation controls a very high proportion of SOL in circulation. Another concern is the lack of sufficient validation tools. Without being too technical, the more validators you have, the more decentralized the network will be. Solana has 1,360 validators, compared to 275,830 at Ethereum.
Running a validation node on Solana is expensive, but as the network grows, so will the number of validators.
4. Regulation will have an effect
The increased regulation will have an impact on the entire cryptocurrency industry next year. In the long run, reasonable regulation is likely to build investor confidence. But we don’t know what form the regulation will take – and even reasonable regulation will have a short-term effect on prices.
Even under current regulations, Solana may encounter problems in the United States. Its more centralized nature means that the Securities and Exchange Commission will likely classify it as a security. This is one of the reasons why the Securities and Exchange Commission has filed a lawsuit against Ripple (XRP). Securities need to be registered with the SEC and follow certain guidelines, but if there is no central party driving an institution (such as Bitcoin), it should not be considered a security. SEC President Gary Gensler has warned that many existing cryptocurrencies operate as unregistered securities — something he plans to act on.
5. You will face increasing competition
Solana may have stolen the show in 2021, but there are many interesting smart contract cryptocurrencies waiting in the wings. There are a number of core blockchains such as Avalanche (AVAX) and Cardano (ADA). You should also include layer 2 solutions that lie on top of existing networks, such as Polygon (MATIC) and Loopring (LRC).
It’s not a winner-takes-all scenario. But we will likely see four or five key players exiting the group. If Solana can continue on her current path, she has a good chance of joining that group. But as we have seen, the year is a long time in encryption.
Some big caveats
I’m excited to see what Solana can achieve in the next 12 months. You have already exceeded many people’s expectations. But I also advise to be careful. Here are some potential roadblocks that could stop Solana in its tracks:
- technical problems. In September, Solana experienced a 17-hour blackout that was blamed on something called “resource exhaustion”. Some attribute it to growth difficulties, but more technical issues in the coming year could cause developers to lose confidence.
- Security problems. Solana hasn’t experienced any major security breaches, but the date validation model is still new. Solana has not been road tested to the same degree as Ethereum or Bitcoin.
These are the risks that apply to many cryptocurrencies, and part of the reason why you should not invest the money you need to achieve other financial goals. This way if Solana – or the entire crypto market – collapses, it will be frustrating, but you will not face financial ruin.
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